Members
Senate Banking Committee
United States Senate
Washington, DC 20510
via fax
RE: KATRINA VICTIMS AND FINANCIAL SERVICES
Dear Senator:
Hurricane Katrina’s survivors are already facing severe financial challenges, and these problems only promise to increase. It is essential that Congress act quickly to protect these individuals, families and communities by enacting targeted consumer protection legislation.
Many of Katrina’s survivors, from a range of income levels, own homes but are unable to pay their mortgages. Personal loans and credit card bills also are going unpaid. Moreover, people are using credit cards and other forms of short-term lending to cover their immediate needs. While certain lenders and servicers are taking important steps to assist consumers, these efforts are not uniform.
We request that you support passage of new legislation that would offer important protections to Katrina’s survivors and victims of other natural disasters:
I. Preserve Access to Credit. In this complex information age, where late payments on a single loan can trigger fees, higher interest rates and even defaults on a broad array of both current and future credit products, it is essential to ensure that victims of disasters are not unduly penalized. Protections are needed to ensure that both the information and the consequences of late payments do not unfairly affect the credit of disaster victims, including:
Establish standards for payment deferrals on personal loans (including student loans, credit card debt, auto loans, auto title loans, and pay day loans) after a disaster;
Limit late fees, check fees, bounce loans, and penalty interest rate increases, which, but for the disaster, would apply to victims;
Limit negative credit reporting regarding unsecured and secured credit;
Enact fraud protections, including enhanced regulation of resale of flood-damaged vehicles, and home improvement contracts.
II. Preserve Homeowners’ Equity and Protect Neighborhoods. To protect the viability of neighborhoods in Katrina’s wake, it essential that homeowners be provided every opportunity to preserve and protect their homes and their home equity. Measures to assure this protection should include:
Establish standards for payment deferrals on mortgages secured by homes affected by the disaster;
Limit the capitalization of mortgage interest accrual during the period of deferral;
Limit late fees and post-default interest rate increases;
Establish protections regarding foreclosures and deficiency judgments;
Preserve states’ abilities to establish protections for disaster victims.
In addition, we urge you to continue to preserve essential consumer protections already in existing law, including the three-day right of rescission and key cost disclosures under Truth in Lending. Current law already provides a necessarily narrow right to waive the three-day right of rescission. Any expansion of this should be limited to instances where the funds will be used for rebuilding efforts that will begin before the three-day waiting period expires.
Moreover, consumer’s long-term financial stability is at stake. Congress should act to delay implementation of the Bankruptcy Abuse and Consumer Protection Act of 2005 and to permanently waive a few of the most burdensome provisions of the law for victims of natural disasters. Congress also should fully fund the Low Income Home Energy Assistance Program (LIHEAP) at $5.1 billion and the Low Income Weatherization Assistance Program (WAP) at $500,000,000. Finally, any future program on disaster-related debit cards should protect the funds held on such cards.
Consumer credit protections are essential to the post-Katrina rebuilding effort. Hurricane survivors who already have lost their homes and livelihoods are at risk of entering a permanent cycle of extreme debt. While financial institutions and consumers all will suffer great losses, individuals and families should not have to bear the primary burden in the aftermath of this disaster or any other.
We look forward to working with you on these priorities.
Sincerely,
Center for Responsible Lending
Consumer Action
Consumer Federation of America
Consumers Union
Demos
NAACP
National Association of Consumer Advocates
National Community Reinvestment Coalition
National Consumer Law Center
National Fair Housing Alliance
U.S. PIRG
